Fear is the stock killer

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Stocks slumped on persistent fears
Major U.S. indexes retreated on Monday. The S&P 500 lost 0.96%, the Dow Jones Industrial Average dropped 0.94% and the Nasdaq Composite slumped 1.18%. But Super Micro shares were a bright spot, jumping 15.8%. Europe’s regional Stoxx 600 index added 0.18%. Household goods led gains, closing 0.97% higher, while tech shares fell 0.65%.

No more jumbo cuts
After last week’s expectation-busting jobs report for September, there’s virtually zero chance the U.S. Federal Reserve will reduce interest rates by half a percentage point at its next meeting, strategists told CNBC. Traders agree. A week ago, they bet on a 34.7% chance of another jumbo cut by the Fed; today, it’s 0%, according to the CME FedWatch Tool.

AI demand is still high
The artificial intelligence boom “still has some time to go,” Foxconn Chief Executive and Chairman of Foxconn Young Liu told CNBC. Foxconn, which reported better-than-expected earnings for the third quarter, manufactures electronics for technology giants like Apple and Nvidia. Demand for Nvidia’s latest chip Blackwell is “much better than we thought,” said Liu.

Tensions push oil prices higher
Oil prices jumped around 3.7% on Monday on worries Israel will attack Iran’s oil production facilities. If Israel hits Kharg Island, it could disrupt the transport of 90% of Iran’s crude exports, said an analyst. Last week was the best for West Texas Intermediate and Brent oil prices in more than one-and-a-half years. They surged 9.1% and 8.4% respectively.

[PRO] Goldman’s getting more bullish
The S&P 500 is in the red in October so far. But Goldman Sachs raised its 2024 target for the S&P to 6,000 from 5,600, making it the second-highest forecast on Wall Street, according to the CNBC Market Strategist Survey. Goldman also increased its 12-month S&P target to 6,300 from 6,000. Here’s why the bank is so bullish on stocks.

September’s blockbuster jobs report, released Friday, lifted sentiment and stocks enough that major indexes reversed their losses and ended last week in the green, but just barely.

That halo has now faded away. Markets are back to contending with rising oil prices, inflation possibly reaccelerating, fewer-than-expected rate cuts and potentially even a distant recession.

Oil prices spiked yesterday after having their best week in over a year. And September’s blockbuster jobs report, the futures market is pricing in a 13.7% chance the Fed will not cut rates at all at its November meeting. That’s a drastic change from a week ago when traders thought there was a 34.7% chance of a 50-basis-point cut.

But a recession?

Admittedly, that’s speculation on my part. But it bears pointing out that the yield curve between the 10- and 2-year Treasurys is “getting close to flipping back into danger territory,” as CNBC’s Jeff Cox noted.

Simply put, when the 10-year yield is lower than that of the 2-year, the yield curve is inverted – which has almost always preceded a recession since the mid-1970s. The yield curve inverted in early July 2022 and normalized in early September.

After Monday, however, the gap between the 10- and 2-year yields is now just 3.5 basis points. It’s not inconceivable, then, for investors who take stock in what the yield curve signals to panic a little.

That said, strategists think a recession is a far-fetched idea, considering the health of the U.S. economy.

As David Roche, founder and strategist at Quantum Strategy, put it, “the economy is fine, thank you very much.”

So much so that “the probability of the American economy going into recession, at least in the fourth quarter of this year, and probably in the first quarter of next year, is close to zero,” said Bob Parker, senior advisor at the International Capital Markets Association.

Concrete numbers are driving market movement. But there’s an undercurrent of fear that can perhaps run contrary to what some of those numbers are saying.

– CNBC’s, Jeff Cox, Lisa Kailai Han and Jesse Pound contributed to this story.